Taxation in the Gulf: Introduction of a Value Added Tax

Abstract

Taxation has become an indispensable part of modern economic systems worldwide, and there are a wide variety of different tax models with different policies, regulations, and collection systems that governments can choose from. Nations have realized the need to exercise care and caution in introducing new taxes. Political unpopularity and a general lack of proper planning and implementation, for example, have led the countries of Grenada, Malta, Belize, Vietnam, and Ghana to repeal their Value Added Tax (VAT) systems. On the other hand, the recent implementation of a VAT in India proved incredibly successful. In recent years, VATs have replaced traditional sales taxes in many countries, and several others are considering repealing their sales taxes and implementing a VAT. The oil rich states of the Gulf Region have long remained zero tax countries (8). However, with their rapid growth and persistent need for infrastructure, this tax policy is becoming less and less tenable. In just a few decades, the states of the Arabian Gulf have transformed their population centers from temporary tents built on dry, barren lands and sand dunes into ultra-modern, high-tech, and e-savvy boom towns. As a result of this increased growth and pressure on the region’s governments to provide infrastructure to support these growing urban centers, the Member States of the Gulf Cooperation Treaty, which together make up the Gulf Cooperation Council (GCC), have felt the need to introduce a tax system in the region.